Were Hedge Funds Right About Piling Into Tiffany & Co. (TIF)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Tiffany & Co. (NYSE:TIF) and determine whether the smart money was really smart about this stock.

Tiffany & Co. (NYSE:TIF) has seen an increase in hedge fund sentiment of late. TIF was in 69 hedge funds’ portfolios at the end of the first quarter of 2020. There were 62 hedge funds in our database with TIF holdings at the end of the previous quarter. Our calculations also showed that TIF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Navroz Udwadia - Falcon Edge Capital

Navroz D. Udwadia of Falcon Edge Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the new hedge fund action regarding Tiffany & Co. (NYSE:TIF).

Hedge fund activity in Tiffany & Co. (NYSE:TIF)

At the end of the first quarter, a total of 69 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TIF over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Pentwater Capital Management was the largest shareholder of Tiffany & Co. (NYSE:TIF), with a stake worth $261.8 million reported as of the end of September. Trailing Pentwater Capital Management was York Capital Management, which amassed a stake valued at $207 million. Carlson Capital, D E Shaw, and TIG Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Athos Capital allocated the biggest weight to Tiffany & Co. (NYSE:TIF), around 14.85% of its 13F portfolio. Sand Grove Capital Partners is also relatively very bullish on the stock, designating 14.08 percent of its 13F equity portfolio to TIF.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. TIG Advisors, managed by Carl Tiedemann and Michael Tiedemann, created the biggest position in Tiffany & Co. (NYSE:TIF). TIG Advisors had $167.8 million invested in the company at the end of the quarter. Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital also made a $94.4 million investment in the stock during the quarter. The following funds were also among the new TIF investors: Steven Clark’s Omni Partners, Renaissance Technologies, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Tiffany & Co. (NYSE:TIF) but similarly valued. These stocks are Keysight Technologies Inc (NYSE:KEYS), Nasdaq, Inc. (NASDAQ:NDAQ), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), and Corning Incorporated (NYSE:GLW). This group of stocks’ market values resemble TIF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KEYS 40 990732 -9
NDAQ 26 112042 1
ODFL 33 347639 -1
GLW 30 106293 -5
Average 32.25 389177 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $389 million. That figure was $2916 million in TIF’s case. Keysight Technologies Inc (NYSE:KEYS) is the most popular stock in this table. On the other hand Nasdaq, Inc. (NASDAQ:NDAQ) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Tiffany & Co. (NYSE:TIF) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately TIF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TIF were disappointed as the stock returned -6.6% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.